Here are the facts: the SPY is up 9.56% month to date.
The last time we enjoyed similar gains was in April of 2009 (+9.94%), September of 2010 (+8.96%), April of 2001 (+8.54%) and March of 2000 (+9.69%).
So what happens after such huge runs? Stick around and I will tell you.
In May of 2009, the market soared by another 5.84%. In October of 2010, the market moved up by another 3.82%. In May of 2001, the market declined by 0.56%. And, finally, in April of 2000, the market dropped by 3.52%.
It’s important to note, since 1993, the market has increased in October by 5% or more four times. Without failure, each October surge spilled into November.
Of course, percentages are meant to be evened out, eventually. And, past performance can only serve as a guideline to future events. But it’s important to respect momentum. When the market gets going, especially into Thanksgiving, it does not relent.
Obviously, if things do not reverse quickly, I will have no choice but to close out my hedges and get long. Even though I missed out on the last few percentage points, I remain at annual and all time highs. It does not look good for the bears, frankly. The news is horrific, but prices continue to move higher. This is classic bull market behavior, whether I like the reasons or not.
My big task is to find stocks that conform to my new risk tolerance level. Into the final months of the year, I will avoid high beta tech and basic material stocks, aside from the ones I already own, in favor of predictable free cash flow food and beverage companies. Naturally, this will evolve or devolve into early 2012 river boat gambling. However, for now, this is where my focus will be concentrated.